tv After Words CSPAN May 4, 2014 9:00pm-10:01pm EDT
>> host: as soon being married and writing books, i am amazed it ended in a book rather than a divorce. how intense and weird is it to write a book in that particular sort of way? >> guest: the key is not to write on the same chapter at the same time. one works and does primary work on another chapter and another does the other chapter and turn it over for edits from one another. we were able to do that and finish the book. anita has been my wife for 35 years and she is researching or listening to me talk about it. we discussed the ideas and refined them and she is a definite co-author. >> >> host: congrats to taking on
the project and making it work. there is a line that says when i hear the word culture i reach for my revolver and i have the same feel when i hear investment in the context of politics. it looks like it should be stopped before it gets started. this has become a normal part of the political rhetoric. the idea that government is an investor but the chief investor in society in many ways by making critical investments and offering industries guidances. but it seems to started with beaver pellets. at least in the most formal sense. i want to challenge your title
which is "uncle sam can't count" i would argue he is not counting return on investment but he is counting votes instead. so that is not what we normally think of when we think of investment. so give me the broad outline of where this starts. >> sure, the implications of the title is these investments are not successful. they are money losers again and again. you have administrative functions and enforcing contracts and coining money as jobs. and then you have national defense. when congress sticks to those functions it can do well. when it moves into investment and sparking economic growth, the record is absolutely terrible. it starts with the bever pellets and george washington, who was a
great president. washington is a great president. but this quote investment me made in the fur trade was a disaster. it often starts, the subsidies or investments, with the idea it going to spark economic growth and benefit the country or it will protect the country and pseudo national defense. that is what the fur trade was with washington. he was concerned the british were going to encroach on american territory and we had not rided ourselves. but if we set-up a government fur trading company that would establish the united states presence and the british wouldn't come down. he subsidized a fur company and it was a disaster.
the encroaching was right where the fur trade was. and i write about thomas mckinney. the work is almost funny. the subsidies are disastrous but there is fun in them. they got the idea we should sell the indians farming equipment when they were hunter and gathers. and mckinney said we need to branch out and cultivate their state and he buys juice harps and a chinese mandarin dress and he is surprised they don't want to buy all of the items. the british came in and the
indians are prefering to trade with him. john jacob aster, the first man to be worth $10,000, comes into the market and moves the british out by his competitive practices. he has people living and trading with the indians on the spot. and in 1822, congress abolished the operation and that subsidy is defund. >> host: the idea of beaver pelts being a critical source brings to love the precious bodily fluid thought. it sounds crazy. but prom the late 18th-early 19th century, it obviously didn't seem insane.
there were, at the time, plausible and good arguments for it. and the ways in which the subsidies went wrong would have been, at the time, hard to predict. would you go into more details in which the subsidies produced the opposite of the results they were intended to. >> guest: sure. you have these intentions and they are often good. i thought your point was interesting about uncle sam can't count but he can count votes. a lot is well intentioned. we believe we can spark economic development by funding a steam ship company to compete with the british. edward collins gets to the steam boat business and receives a federal subsidies and he is running a terrible line. the cost go up, he crashed 2-4 ships he had but the federal government is funding him even though a private steamship
operate, vanderbilt is on the scene cutting prices and operates successfully. he goes bankrupt and congress cuts him off. but he spent $11 million on steam boat industry when 20% of the debt is represented in misplacement steam ship sub subsidi subsidies. >> host: back when $11 million meant something. do they take away the element of competition or going out and
dealing with one customer's in a direct normal market way or other incentives that cause the industries to perform badly once subsidized. >> guest: my taking away the competition, you take away incentive you might have to really produce a competitive product at a cheap price. and by having the government involved, it creates among the person receiving the subsidy, whether the fur trade operator who received washington's subsidy or the steam ship operators receiving the federal one or later on the transc transcontin transcontinental railroad. it brings the idea we need to please the politicians and more money comes if the current business fails. that removes you from competition.
whe whereas the private people like the wright brothers it to be price conscious because they were trying to create a competitive item that caused them to be conscious of the competition. in the case of the ones that succeeded against a competitor who was federally subsidized, that made the task more difficult. and we maybe knocking people out of the market by subsidizing the wrong people. >> host: the instrument in evolution is death of the individual, the species, the subspecies and while it is easy to make too much of darwin
metaphors, the death of the line, death of lines of product. you bring out now coke and massive amounts of people don't want it. or in the '80s there was a product called touch of yogurt shampoo. no one wanted to buy it despite the marketing people thinking it was going to be a great product people would run over themselves to purchase. you have the credit rating agencies where the federally chartered. you remove that element of business failure from the equation. and so the normal instrument by which businesses and industries get more productive, more efficient and better able to connect their customers with the goods and services they want, is
interrupted. it isn't just a matter of application. people say if we had the right people or policies they would have worked out differently. but it is something that interrupts the fundamental mechanisms of development. your thoughts on that. >> guest: the implication you are saying is if vanderbilt received the subsidy he might have failed. that is possible. steve jobs is a good example saying we are the crazy ones that believe we can accomplish something that can not be done before. they believe there is a market there before you know what you want. and that kind of worker
essential to the country's history you cut that person off when you fund someone else to do something traditional. you don't get the same i innovation. >> host: one story i would like to focus on that i enjoyed in the book was the story of langley who was the government competitor funded to the wright brothers in developing the first flying machines as they were known at the time. you look at langley's resume and it looks like one you should put the money on. harvard and the head of the smithsonian commission.
and he was like george h.bush when running for president. you could not have a better resume. so you are making investments with other people's money he seems like a safe bet over the two yokels with bike shops and playing on the hills in kitty hawk and a couple of no bodies. but it ended up being the wrong decision. >> guest: right. just like herbert hoover world war ii have been the likely president to be elected in 1928 with foreign policy, domestic, engineering experience and creating health in so many ways he seemed like the logical man. but he wasn't. henry ford wasn't like the poplar man to popilate the car. grew up on the farm and poor
parents. that is the thing about the market place. you can not tell who has the good idea and the perseverance. there is a lot that goes into it to make it successful. and langley, your point is correct. the united states had the view in the 1900 that because german and french were experimenting with an airplane. and their idea was if they happen to be able to invent it a foreign power will take that r airplane coming over and drop something on your country. the idea is markets may work better than subsidized investors but it maybe too slow and by the time it is in gear the europeans may have the airplane and it might be too late in foreign policy.
subsidize langley. he seems to be your best bet. he's has honorary degrees and written a book on aero dynamics and flew over the plutomeic and he says i can do it. we fund him giving him two shots. the first one goes up and then right into the water. and a couple months later they do the second flight and it goes right up and the same thing. and according to many of the sources it said it didn't fly at all. it went right in the air and the power that pushed it into air -- he believed you needed a c catapolt to launch the plane. it went crashing in because that was his theory of dynamics.
so the wright brothers had hair own theories. they were testing gliders because it was windy and not many people around. so they would go out on the gliders and develop wind currants and how to fly and turn and try to deal with all of the that. and eventually put an engine on that device. nine days after lingly's second failure, the wright brothers with $2,000 of their own money invent the airplane. it is a classic example of the government funding the wrong person and someone you would never suspect gets the job done for the united states. >> host: that was fascinating about the story. the wright brothers, through their experience, largely worked
out the engineering challenges of making it work but they didn't have an engine. they needed an engine that was eight horsepower and weigh less than 200 pounds. so they go to their shop mechanic and say we need an engine that can meet these specks. and he built one that weighed less than needed and does it with parts that are available within walking distance of the shop. and this is in dayton, ohio. as someone who followed federaling contracting from time time and the $200 hammers and $700 toilet seats -- peck specks matter but this was amazing. >> guest: it was so unbelievable that the wright brothers had been successful while langley,
the jgenius failed. they tried to get him another subsidy so we can succeed. when the wright brothers finally had their plane up and ready to fly they offered to sell it into the united states for military purposes. and the purpose of funding langly was that we would have the airplane before the europeans. so the wright brothers offer to sell the flier to the united states and they turn them down. instead they buy a balloon. a helium balloon because that looks like it maybe the wave of the future in the air. and finally in frustration, the wright brothers do international
test. he goes to france and shows what he can do and the idea is we are going to start selling. we are loyal americans and we want to sell but it has been five years since inventing this airplane and we are friday buyer and to get into the commercial size and then finally the united states government stepped up and bought the plane. >> host: i enjoyed the telling of your story of him going to fran french. they described him as [foreign word] . in terms of overerly funded boondoggles associated with the word fe name langley we are in
the same period. it brings to mind sputnik and the missile class and we cannot have a stone ax gap at some point in prehistoric government history. >> guest: sure. that is a problem. once you accept this idea that you have quote a cgap, in this place an airplane gap and after that was with a missile gap and richard nixon had the idea that government needs to step in and private enterprise can't do it. but the inventions are above and beyond what thought. the reason we have i-phones is
because steve jobs and others thought if we can produce this the market is there. henry ford in his own way was the same way. horses and buggies were getting the job done but ford had the vision of a car in every garage. he had to cut the cost and deal with road building and that was done by the states for a long time. but the idea is they have the imagination to think about what you want before you know you want it. >> host: and alexander graham bell couldn't have imagined what a telephone would look like now but we think jackson would. what is interesting about the wright brothers is langley was working on a political problem and the wright brothers were
working on an engineering problem. and engineering has a question of it stays up or not. and there is talk about politics and policy problem and what is an engineering problem. and this goes back to the grand daddy of all subsidy boondoggles of the modern area which is reconstruction of the financial committees which was brought by an engineer, herbert hoover. hoover has a mixed record on economic matters. in many ways, he was an admirable character and during the depression he responded poorly and believed that government intervention was the way to deal with the depression and all of this stuff happens in response to a perceived research
whether it was the germans are going to get a airplane or the russian have a satellite. the difference here is that the depression was an emergency. to be charitable toward hoover and fdr, they were trying things that were not discredited. from hoover's point of view maybe it wasn't a terrible idea. it is the point at which the united states stops having a government and has a bang with the navy. tell us about how that got started and its sorry history. >> guest: that is true.
the refinancing corporation comes into the existence because of the great depression. hoover did a lot of things that were problems. it was under hoover's administration that the income tax was hiked from 25% to 63%. so there was a lot of things that were not good. the reconstruction finance coperation had the worst permit effect. we had banks and corporations in trouble and instead of having congress vote in a subsidy let's crete a group that has the power and funds to throw subsidies into various corporations and that will help us get out of the great depression. in other words, we go from having subsidies funded by the federal government and congress or by the war department at
least, someone who is accountable. we have a presidential instruction that is accountable and congress is accountability. so steam ship subsidies didn't work and we have a party and congress that is responsible. the finance corporation changed the game because you have a large amount of money that is going to be ever increasing. congress will vote to increase appropriation and they can pick and chose who to subsidize. they have not worked up to the great depression and what makes thinks if we have a board they will not non-partisan decisions? they become partisan and the
biggest loan goes to vice president dodge who risigns one week later to receive a subsidy for his bank in chicago that failed anyway. you have the politics becoming intense and we have the second of the interior gets a loan, the head of the national republican committee gets a loan, a republican senator from maryland gets a loan with for his bank. and some democrats do. but you have a partisan distribution of the funds with the financing corporation. roosevelt comes in and it becomes a fund to the democrats and that continues during world war ii and funds a lot of enterprises into the war. at the end of the war, the
emergency would be declared over but it wasn't. this was the problem. once you set-up a funding federal organization it is hard to get rid of it. the reconstruction financial committing is still existing giving subsidies to cronies of president truman. then it is abolished and you set-up the small business instruction which is activated to give small business republicans loans. so both political parties down the line have a stake in what the chapter we call the dc subsidy machine. it is set-up with massive subsidies go out and the function and purpose and affects of the -- the effect is
disastrous. >> host: the roosevelt administration tempted a newspaper to write a good article about them with bribes. i am sorry this never happened to me. >> guest: you need to live in the 1930's and 1940's. >> host: in the purchase of a $10,000 mink coat. in 2014, a $10,000 mink coat is expensive. in 1939, that is 2-3 times the average householiday income? >> guest: yes, you are talking over a 100,000. >> hoover says we will not need
to use the committee very often and it will probably only need to be around two years. >> guest: correct. >> host: reagan would say nothing touches like the government. and now the small business instruction is the most corrupt and rent seeking self serving organization in the united states government. certainly in the top ten list. >> guest: sure. >> host: but we have seen the tarp authority during the housing meltdown which was supposed to last for a little while. we only just now gotten disinvolved from the general motors case in which the united states was a large shareholder and took a $10 billion loss on that during a time of leaving 13
people dead as a result of faulty ignitions and there is the question of maybe that wasn't investigated as much as it should have been because the main stakeholder was the united states. what hope is there for allowing the people that establish and manag manage the programs and benefit from them to see the error of their ways? >> guest: it is difficult. that is why we have to get a new way of thinking in there. if you have agencies that have to be -- if you have major subsidies, which are a bad idea, but if funded by the government you have accountability.
but otherwise, they don't have accountability. the rfc was a monster because you had the small business corporation and then fanny may comes from that and the export/import bank that belongs on the list of those that are politicalici politicalicized in the money they live. over half of the federal loans have gone to bowing and general electric has been rewarded. and they have connections with the obama instruction -- administration -- starting with hoover, continuing through roosevelt, the political aspect of this is important and the politici politicians are using it to
count votes and reward people and making bad decisions. very rarely can you site windup of these programs that benefited the economy. >> host: if you look at gm and bowing's statements it is difficult to look at them as private companies when you look at where the revenue comes from and the profit centers. what they remind me of are the corporate mussolini's model of economics where you have firms that are nprivate and run with private shareholders but subsidi subsidized/controlled by the government in the way of doing so that they can act in the best
interest. so we did a bad job getting the plane off the ground, but the aero department which was called the war department is now the department of defense and homeland security. does it make sense to talk about companies like they are normal private firms? >> guest: increasingly, no. in the case of boeing, their latest airplanes are backlogged to 2019. so they are hardly in need of a subsidy. when anita and i wrote the book we were concerned about the american corporations and how america's corporations with becoming like a highly regulated country and there is not a link
between business and government. where that occurs you don't see the con consumer winning. lots of money is wasted. innovation is hard to achieve. if you had had a horse and buggy committee they would have said look at the accidents going this fast and we don't have the roads. we will regulate them off. a free economy gives us the chance of what does and doesn't work and gets us away from the idea of subsidies being linked. that started with the 1932 reconstruction financial corporation and haven't backed
away. we need a change in what enter prise is about. when the federal government gets involved trying to spark economic development, away prom the constitutional functions, when that occurs, the federal government enters into something it isn't capable of mastering. >> host: i have a friend who is a libitarian activist and run as small investment fund. the companies he invested in are the villians. and he is saying get boeing because what happens they are protected. the day that boeing is out of business isn't on the horizon.
what is depressing about this, although your book acceisn't depressing, but this is a lesson we refuse to learn. in the wilson administration we separated the founds based on the war. and the incoming congress and presidential nominations saw it wasn't a good idea to keep it around. they set it to one side and these ideas sat there and ferment until the depression and world war ii. the economy that emerged after the world war ii was a big moment. it happens because the united states has almost all of the
worlds surviving non manufacture materials. europe, japan, united kingdom -- all of the sophisticated regions were destroyed. when people look back at those years, they draw precisely the wrong lesson. we set-up this that and the other program during the depression. and during the war we were involved in the economy and then a 91% top tax rate. maybe that was the growth. not the fact our competitors were cleared from the world change and by 1973 the rest of the world has begun to recoverfe
recoverfelt. the uk is still struggling because they took the wrong lessons from the war. and then a stagnation in the 1970's. men's income peeked in 1973 which was around the time i was born. and yet we continue to try to do the same thing. so in the 1970s, you get nixon working on the people and then the auto makers saying we cannot be expected to compete with the japanese. we hear this about china. they are poor and selectiveness and don't have our standard of living. now tokyo has much higher standards of detroit did or has.
and we want to say the wave of the future is wind mills and green energy but the market isn't moving that way so we need whitehouse, congress, and department of energy to push capital in the right direction. talk to me about wind mills and whatever the new trends in green energy are. and i say this as someone who admires green energy. there is an oil refinery in texas that runs on wind. no people lots of wind. western pennsylvania, the gas wells pumping the gas from the fracked wells run on solar.
talk about ilan musk as well. >> guest: the last section is written about the people seeking the subsidies. with world war one and two we learned the wrong lesson. the budget declined by 50%. in world war down from 73% to 25% cut. so it wasn't a state directed recovery. it was a private directed recovery. we come out with the wrong lessons. and in the '70s, we had an energy crisis. the market would say rather it is ethanol, solar, wind energy,
but the price, as oil rises becomes more apparent. henry ford thought ethanol would prevail and he built the tanks for both. but there is something about being efficient to process the corn crop and the cost of putting it into your gas tank. but nixon and carter thought that time was at an end. and that is when we really began to get the solar energy beginning and the ethanol subsidies coming in with daniel's midland becoming one of the biggest recipients of federal subsidies to put together the ethanol business.
carter and nixon say the amount of fuel we have is dwinding. it is finite. whereas the crops are renewable. sol solar energy is good. in west texas there are areas where experiment is done but with the decline in fuel we need to shift over. it is okay if we have high prices for oil because it is going to dwindle down to nothing and that will keep the dwindling from being dramatic. we will shift over into the green energy and be a better country for it. nixon and carter sold that bill and we bought it except for reagan. and reagan's line was there is more oil in alaska than saudi arabia. we need to control the price
fixing in the oil industry and free it up. people said it was terrible. but in the early 1980's, the development of fracking is perfected and right about the time that the oil boom was underway and the markets were being allowed to produce more in oil. we saw a decline under reagan and then development of fracking. fracking needs to be umprived -- improved -- maybe for hundreds of years with the discovery we have in north dakota and we have enough oil to keep the country
going. this changes things. we have been paying high oil prices much of the time and the markets are beginning to grow and the subsidies continue unabated. you had a $500 million for solar energy subsidy and the solar power never had a chance. it is sad to see the polittle connections between those people in charge of sulinder and president obama's campaign. you have the political connection there.
>> y that political connection with obama and nixon and many presidents in between show the problem once you shift to government making the decisions and the political question there. in this energy case we maybe in good shape with oil production and not deal with alternate fuels. they are competitive and might be able to be developed in circumstances and as people improve and we get better conditions. in a hundred years there might be better ways to get the wind mills to work better. they kill the birds and destroy acres and acres orf land. >> host: i remember reading
there is a volkeswagon plant in tennessee that has the solar ray. it produces about 12.5% of the energy that is necessary. there are times when it makes sense and doesn't. one problem, i think, with these programs is that they do their creation of political incentives and keep us from concerns. there is concerns about fracking and it is good we talk about those and deal with the problems. but there are enormous environmental problems associates with ethanol with the way the corn crops affect the farmers and the shortage of water is a real issue and
ethanol plants take tremendous amounts of water. but you never hear of one balancing the other. solar power production has to use a lot of highly toxic chemicals to make it work. as we are getting close to winding up here, i have enjoyed these specific historical examples, but in the middle of the 20th century we get the great australian economist talking about the social calculation program and he argues in experiences that confirm is in the absence of
marks there is no way to make an intelligence decision about resources. we have seen great through about what goes through complexity and what those theories say is p predicting, understanding, explaining and preempting the markets is difficult and something that is not possible in principle because of the complexity of the underlying information. so science is far ahead of politics. we have a current instruction administration that likes to go on and on about the commitment to science and the need to put this informed opinion at the
center of the debate and that creates irony because the rfc and related programs are on the panel of experts who don't want to run and they can be the wiseman. and what our best wisemen are telling us is panels of wise men don't do what you want them to do. one hopes this might be an opportunity for us as these ideas gain public currency to challenge the thinking in terms of application and doing a good job and whether doing a good job is possible even in theory. so in closing i thought maybe your thoughts on that. >> guest: as you were working through your question there, i thought there was a good parallel between president hoover and president obama. there is that sense in both of
their presidency that we can scientifically work through problems by appointing groups of experts. but the problem is the groups come in with bias on what could be done and can't be done and frequently they are wrong. if we go by them we go on the wrong path for decades. i would put the energy crisis as a perfect example. when it was said the energy crisis is here to say caused by the delining oil supplies the experts lined up and could give you a calculation. they could not content on people like george mitchell that developed fracking and we were able to reach sources of oil we didn't know could be reached in the 1970s. once the sources were reachable,
and develop ways to remove the environmental problems, then we have the opportunity to increase our energy supply by a hundred years. it is no longer an energy crisis. the experts were saying it was. entrepreneurs can count. if they can't, they are not in business long. the good ones can. they change the lives for americans for the better. the freedom they had in the late 1800's. once we were through with the transcontinental subsidies we had had the airplane and backed off and looked rockfeller and others develop with
entrepreneurs that led the united states to dominating the world and immigrants came to the united states and the united states was the place of invention and entrepreneurship and i hope we can maintain that. and steve jobs gives me hope that, if the government gets off their backs, can get it done. >> the problem with expertise has issues. and i mentioned the new coke idea. no one into the world knew better about soft drinks than coca-cola did. >> guest: their test showed new coke would work. >> guest: the problem isn't just in the public sector but the private sector. reminds me of the bill gates story. at the height of microsoft ascending and someone asked what he is worried about in terms of
competitors and gates was wasn't worried about companies like ibm or sony getting into the market what he worried about was a kid in this garage doing what he did a generation earlier. and all of these industrial steering projects are forward directing saying this is where we have and we can make decisions about the future. in the case of george mitchell -- fracking was around for ever. it was around by a hundred years. but frack and horizontal drilling and improvements that produce the results that were not predictable by anybody. exonn didn't know. chevron wasn't able to predict. but there is a guy with an idea that turns out to change the
world. if we had had the government deciding what technology is best to get oil out of the crown we would be driving corn fuel cars instead of 10% corn fuel now. >> guest: i can you are exactly right. the horizontal drilling and the fracking would have been deminished and denigrated. the experts would say that doesn't work. we have to look at reality and the reality is the reserves are dropping and you are using an untested method. we need the reality which is alternate feel and subsidize ethanol and put 40% of the corn crop to make it work. it is renewable energy and all logic. >> host: and they would never pick the wright brothers over langley. and mitchell over chevronn or
microsoft over ibm back in the day. >> guest: my co-author talks about steve jobs working in his garage and what comes of an entrepreneur in a garage. you don't need the corporate office. you need someone with an idea and perseverance and dreamers. the united states has their share of dreamer and that led to the economic growth we experienced in this country. >> host: i think from computers and rock and roll, the best things about our country has come from garages in california. >> guest: or lubbock, texas. >> host: buddy holly as well. our state is a subsidy for solar
wind panels. maybe you and i can talk them out of it. thank you for the conversation. i enjoy it. >> guest: thank you, kevin. >> that was afterwards. booktv's signature program in which authors are interviewed by people familiar with their material. afterwards airs every weekend at 10 p.m. an and 12 and 9 p.m. an sunday. you can watch afterwards onlinefelt go to booktv.org and click on afterwards in the topic list on the right side of the page. booktv covers hundreds of author programs throughout the country and here is a look at some of